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Portfolio Optimization

a portfolio optimization and portfolio technology, applied in the field of investments, can solve the problems of exacerbated problems, difficult investment choices for the typical individual investor, and investors without understanding or resources to properly inves

Inactive Publication Date: 2010-01-21
GORBATOVSKY DMITRY
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  • Summary
  • Abstract
  • Description
  • Claims
  • Application Information

AI Technical Summary

Benefits of technology

[0014]The present invention seeks to provide a method for comparing, creating and optimizing investment portfolios for an individual investor that is readily understandable to the individual investor, taking into account the investor's investment objectives and risk tolerance, employing measures of risk that, too, are readily understandable to the individual investor. A further objective of the present invention is to provide guidelines for generating an optimized portfolio for the individual investor from a plurality of asset classes available to the investor.

Problems solved by technology

The problem investors face is to find some rational, systematic method of selecting this portfolio from the plurality of investment vehicle classes and the virtually endless individual investment vehicles available.
Historically, investment choices have been difficult for the typical individual investor, particularly in that investors typically wish to invest in a number of different investment vehicles for purposes of diversification but have a limited amount of funds to invest.
The problem is exacerbated by the fact that most individual investors have neither the understanding nor the resources to properly gauge the risk of and prospective return on investments.
Both approaches suffer from a number of limitations, most notably in both cases that they are not readily understandable by the typical individual investor.
These indexes however, in addition to their technical limitations, in each case suffer from the shortcomings of the risk measure used.
However, he uses a non-standard approach to risk and evaluation that does meet his goal of understandability to the individual investor.
Here, too, risk is defined in a non-standard and non-intuitive way that does not provide the individual investor with clear or unambiguous means for making investment decisions.

Method used

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Embodiment Construction

[0032]Inherent in every investment is a certain degree of risk. When investing in risky assets, an individual investor naturally expects the investment to yield some gain or return in excess of his initial investment at some later desired time. One risk is that of not being able to retrieve even the initial investment without waiting until some later time. Another risk is that the investor may have to liquidate the investment at some time earlier than desired time, when the investment is worth less than the initial investment. Balancing these risk factors is the reward of an increase or gain in the value of the investment that the investor hopes to achieve.

[0033]The success of rational individual investors at achieving their investment goals can be characterized by a Utility Function, U, which is dependent on three parameters: two measures of the risk and one measure of the expected reward; namely:

Tr Recoupment Time or payback period. This is a maximum period after which an investor...

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Abstract

A method for comparing, creating and optimizing investment portfolios is provided. The utility function for an investment is characterized, and the optimization problem for the utility function is stated based on investor preferences and risk tolerance. According to one embodiment, the measure of relative performance of investment portfolios is calculated based on the investor utility function. According to another embodiment, guidelines for generating an optimized portfolio for the investor from the plurality of asset classes available, are mapped out.

Description

FIELD OF THE INVENTION[0001]The present invention deals with investments in general, and, in particular, with the evaluation of the relative performance of portfolios.BACKGROUND OF THE INVENTION[0002]Investors are individuals, with unique personal and economic requirements and profiles, which affect their need for cash and their risk tolerance. Since every investment vehicle has its own characteristics, such as earnings, dividends, growth potential, volatility, safety, and the like; it should be possible, in principle, to construct a portfolio that is tailored to any given individual investor's needs. The problem investors face is to find some rational, systematic method of selecting this portfolio from the plurality of investment vehicle classes and the virtually endless individual investment vehicles available.[0003]Historically, investment choices have been difficult for the typical individual investor, particularly in that investors typically wish to invest in a number of differ...

Claims

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Application Information

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Patent Type & Authority Applications(United States)
IPC IPC(8): G06Q40/00
CPCG06Q40/06G06Q40/04
Inventor GORBATOVSKY, DMITRY
Owner GORBATOVSKY DMITRY
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